Automobile
depreciation rates and dealer markups in the United States and Britain during the 1950s and 1960s provide evidence on
the effect of asymmetric information on market structures. Initial depreciation
was not exceptional, and trade was not disabled. ‘Lemon’ effects were evident
in some periods but not others. Depreciation and markups increased with
mechanical and styling uncertainty. Adverse selection kicked in as cars aged:
high selling costs caused dealers to withdraw from trading older cars. Despite
their lower quality, British makes depreciated less, probably due to different
novelty signals and longer styling cycles.